THE Economy and REAL ESTATE
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Transcript of THE Economy and REAL ESTATE
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GLOBAL RESEARCH AND CONSULTING
THE ECONOMY AND REAL ESTATE
GARY BARAGONADIRECTOR, RESEARCH & ANALYSISJANUARY 2014
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2 GLOBAL RESEARCH AND CONSULTING
TOPICS COVERED
U.S. Economy
Southern California Economy
Mega-Trend: Workplace Strategy
Mega-Trend: E-Commerce
U.S. Property Market Fundamentals
Los Angeles Market Fundamentals
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GLOBAL RESEARCH AND CONSULTING
U.S. ECONOMY
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4 GLOBAL RESEARCH AND CONSULTING
U.S. ECONOMY
Economic growth will strengthen in 2014
Jobs are everything
Industrial indicators are solid
Resurgent housing market
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5 GLOBAL RESEARCH AND CONSULTING
FORECAST
U.S. ECONOMIC EXPANSION OUTLOOKAnnual % Change
Source: HIS Global Insight
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6 GLOBAL RESEARCH AND CONSULTING
FORECAST
U.S. JOB GROWTH SLOW AND STEADYU.S. Total Nonfarm Payroll, Annual Net Jobs (1000s)
Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
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7 GLOBAL RESEARCH AND CONSULTING
FORECAST
RETURN TO PREVIOUS PEAK IN EARLY 2014U.S. Total Nonfarm Payroll, (Millions of Jobs)
Source: U.S. Bureau of Labor Statistics, Moody’s Analytics
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8 GLOBAL RESEARCH AND CONSULTING
RECOVERY TRAILS PAST CYCLESMonthly Job Growth Index (Business Cycle Peak=100)
Source: U.S. Bureau of Labor Statistics
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9 GLOBAL RESEARCH AND CONSULTING
GROWTH RATE VARIES BY REGIONMonthly Job Growth Index (Dec 2007=100)
Source: U.S. Bureau of Labor Statistics
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10 GLOBAL RESEARCH AND CONSULTING
TECH & ENERGY MARKETS LEADINGOffice-Using Employment Outlook, CAGR 2013-2018
Source: U.S. Bureau of Labor Statistics (BLS): Current Employment Statistics (CES), Quarterly Census of Employment and Wages (QCEW); Moody's Analytics (ECCA) Estimates
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11 GLOBAL RESEARCH AND CONSULTING
U.S. INDUSTRIAL PRODUCTIONIndustrial production is just shy of pre-recession levels
Source: Federal Reserve
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12 GLOBAL RESEARCH AND CONSULTING
U.S. IMPORTS & EXPORTSImports are stronger than they appear once oil is excluded
Source: U.S. Census Bureau
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13 GLOBAL RESEARCH AND CONSULTING
HOUSING PRICES CONTINUE TO GROWS&P/Case-Shiller Home Price Index
Source: S&P Case-Shiller Index
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14 GLOBAL RESEARCH AND CONSULTING
RETAIL SALESHousing Recovery Boosts Retail Sales
Source: U.S. Census Bureau
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GLOBAL RESEARCH AND CONSULTING
SOUTHERN CALIFORNIA ECONOMY
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16 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Econometric Advisors, Economy.com
POSITIVE BUT LACKLUSTER JOB GROWTHSouthern California: Year-Over-Year Employment Growth
FORECAST
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17 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Econometric Advisors, Economy.com
SOUTHERN CALIFORNIA ECONOMYTotal Employment Forecast (in Millions)
90+ MONTHS TOREACH PREVIOUS PEAK
WE ARE ONLYHALF WAY THERE
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18 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Econometric Advisors, Economy.com
SOUTHERN CALIFORNIA ECONOMYHospitality & leisure, construction, education & health services, professional & business services & technology will lead the way
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GLOBAL RESEARCH AND CONSULTING
MEGA-TRENDS:WORKPLACE STRATEGY & E-COMMERCE
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20 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Econometric Advisors, Moody’s Analytics
MEGA-TREND: WORKPLACE STRATEGYUnderutilized space and modern design slow occupancy growth
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21 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Econometric Advisors, Moody’s Analytics
MEGA-TREND: E-COMMERCEE-commerce will drive demand for industrial space and continue to reshape the retail market
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GLOBAL RESEARCH AND CONSULTING
U.S. PROPERTY MARKET FUNDAMENTALS
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23 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Research, CBRE Econometric Advisors
PROPERTY SECTOR TRAJECTORY
2013 Q4Past Cyclic
High“Natural Rate”
Year Back to "Natural Rate"
Office Vacancy Rate 15.0 16.8 / 2010 13 to 15 2013
Industrial Availability Rate 11.5 14.5 / 2010 9 to 10 2015
Retail Availability Rate 12.0 13.2 / 2011 9 to 10 2016
Multifamily Vacancy Rate 5.3 7.4 / 2009 5 to 6 2010
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24 GLOBAL RESEARCH AND CONSULTING
PROPERTY SECTOR TRENDS
OFFICE• Urbanization & densification• Impact of workplace strategy• Investor interest in suburban, non-gateway markets• Tech markets leading the way
INDUSTRIAL• Supply chain efficiencies• Peak manufacturing productivity• Impact of e-commerce• More speculative construction but still in check
RETAIL• High-street retail still strong• E-commerce growing impact• Omni channel strategies• Shrinking retail footprints
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25 GLOBAL RESEARCH AND CONSULTING
S
L
M
N
AC
D
D
L
P
P
SW
A
B
D
N
S
H
San Diego
Orange County O
Atlanta
Dallas (Suburban)
Boston
Seattle
U.S. OFFICE RENT CYCLE Q4 2013
Source: CBRE Research
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26 GLOBAL RESEARCH AND CONSULTING
RENT GROWTH LED BY TECH MARKETS5-Year Annualized Rent Growth (%), Largest 20 Office Markets
Source: CBRE Econometric Advisors
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27 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Research, CBRE Econometric Advisors
Completions, Net Absorption & Vacancy Rate
OFFICE OUTLOOK
FORECAST
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28 GLOBAL RESEARCH AND CONSULTING
Completions, Net Absorption & Availability Rate
FORECAST
INDUSTRIAL OUTLOOK
Source: CBRE Research, CBRE Econometric Advisors
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29 GLOBAL RESEARCH AND CONSULTING
Completions, Net Absorption & Availability Rate
FORECAST
RETAIL OUTLOOK
Source: CBRE Research, CBRE Econometric Advisors
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30 GLOBAL RESEARCH AND CONSULTING
REAL ESTATE INVESTMENT TRENDS
Increased global interest in U.S. markets
2013 saw the beginning of interest rate increases. In 2014, look for the end of cap rate compression and a new era of NOI growth.
Expect improved economic performance to correspond with interest rate increase
Expect spreads to between primary & secondary markets to compress
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31 GLOBAL RESEARCH AND CONSULTING
Sales Volume ($ Billions)
NATIONAL INVESTMENT SALES
Source: Real Capital Analytics
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32 GLOBAL RESEARCH AND CONSULTING
U.S. Ten Year Treasury Bonds
INTEREST RATE
Source: Federal Reserve
FORECAST
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33 GLOBAL RESEARCH AND CONSULTING
Q2 Survey of economists places the 10-year treasury at 3.5% at the end of 2014
A RANGE OF OPINIONS
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
2013.3 2013.4 2014.1 2014.2 2014.3 2014.4 2015.1 2015.2 2015.3 2015.4
Ten Year Treasury, %
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34 GLOBAL RESEARCH AND CONSULTING
Average CAP rates in all product types will remain flat in the near term
FORECAST
CAP RATE FORECAST
Source: CBRE Econometric Advisors, NCREIF
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GLOBAL RESEARCH AND CONSULTING
LOS ANGELES MARKET FUNDAMENTALS
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36 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Research, CBRE Econometric Advisors
Vacancy Rate & Avg Asking Lease Rate
LOS ANGELES OFFICE OUTLOOK
FORECAST
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37 GLOBAL RESEARCH AND CONSULTING
LOS ANGELES OFFICEMarket dynamics vary greatly on the submarket area
Source: CBRE Research
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38 GLOBAL RESEARCH AND CONSULTING
LOS ANGELES OFFICEMarket dynamics vary greatly on the submarket area
Source: CBRE Research
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39 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Research, CBRE Econometric Advisors
Availability Rate & Avg Asking Lease Rate
LOS ANGELES INDUSTRIAL OUTLOOK
FORECAST
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40 GLOBAL RESEARCH AND CONSULTING
Source: CBRE Research, CBRE Econometric Advisors
Availability Rate & Avg Asking Lease Rate
LOS ANGELES RETAIL OUTLOOK
FORECAST
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GLOBAL RESEARCH AND CONSULTING
THE ECONOMY AND REAL ESTATE
GARY BARAGONADIRECTOR, RESEARCH & ANALYSISJANUARY 2014